China R&D Reader

The rapid growth of China’s economy is reflected in the dramatic rate of development observed in the nation’s biotech and pharmaceutical industry. Currently, there are more than 300 contract research organizations(CROs) and 5,000 pharmaceutical companies in China. The gross domestic product of China’s medical and pharmaceutical industry exceeded US$140 billion in 2008, compared to only $1.2 billion in 1979. Growth of the Chinese market is providing a number of great opportunities for both domestic and foreign investors.The world’s top ten pharmaceutical companies have already invested in China-based production.

The difference between hotspot and differentiation
In China, local and national governments have integrated various resources into the building of bio-industrial parks adopting the business model that first proved successful in the US. Creation of bio-industrial parks is a complex undertaking that presents challenges at every step from idea to application. Following the success of Wuxi AppTec Co. Ltd (Shanghai, China), a leading CRO company; many bio-industrial parks began to seek out and groom similar world class companies such as those providing outsourcing services or conducting researchand development (R&D).

Although the Chinese pharmaceutical outsourcing market is growing rapidly, this does not mean that all bio-industrial parks should focus on CROs. In my view, these bio-industrial parks should pay more attention to the following three factors: local investment environment, geographical location and high-tech talent. Based on the differentiation of these factors, and a need for specialty and high-quality science parks, a national strategy was devised and executed for the whole of China.The challenge for the strategy is matching the needs of companies to local resources. R&D companies need a technology pool (such as academic institutions) and investigative talent; clinical trial companies focus on patient populations and better hospitals; manufacturing enterprises are concerned with cost reduction. Bio-industrial parks should, therefore, introduce targeted companies and develop their specialty according to the appropriate differentiation within the biotech industry.

Balancing me-too and innovation
It is necessary for the government to encourage Chinese companies to be innovative. While innovation is very important but relatively weak as a basis for China’s pharmaceutical industry, me-too, outsourcing, in-licensing and out-licensing are other essentials for the growth of the industry. In most of China’s second-tier cities, me-too and outsourcing would be the better option as a focal point for development activities.

Furthermore, I believe the small and medium-sized enterprises engaged in short term development, for example, production of diagnostic reagents, may be better suited to second-tier bio-industrial parks. In contrast,companies based on proprietary technology require a long-term strategy and market orientation. As such, the government plans a park’s development strategy based on the local development situation and future goals in order to strike a reasonable balance between me-too companies and innovative ones.

Opportunities and challenges
China has the world’s largest population, and the country has undertaken sweeping reforms designed to improve healthcare access in the country. At present,China is actively promoting a rural health policy to activate and improve the health insurance for 800 million rural farmers. This initiative undoubtedly represents a huge number of opportunities for domestic and international pharmaceutical businesses. We believe that an annual 25% growth rate of China’s pharmaceuticalindustry will remain consistent for the next five years(the end of China’s twelfth Five-year Plan for Economic Development).

Harnessing these growth opportunities is a new challenge. Each of the top ten pharmaceutical companies has entered China and is either building an R&D center or renting space for R&D operations. However,some companies are still hesitating, wondering about the uncertainty of Chinese policy and marketing. Certainly,adapting to a rapidly changing market is a difficult challenge for small and medium-size enterprises.

Balance soft environment and hard infrastructure
Most of the bio-industrial parks have made large investments in construction infrastructure, including first-rate buildings and advanced equipment and instruments. The true accelerators of enterprise development, however, are more important than these solid structures. These catalyst include optimised training systems, efficient talent recruitment services, frequent academic communication, professional law services and intellectual property rights consulting. As a lead-ing and professional consulting company, we providethese services to developing enterprises. From talent recruitment, market expansion to finance channels,we provide a one-stop service.